It is a good time to be a fixed income research analyst in Asia on the buy-side. Being one, I have been having been a ball attending an average of 2-3 fancy road shows per week for the last three months. Delicious lunches, even better dessert and the ever–so-polite CEOs and CFOs of billion dollar companies being at pains to answer my questions. If one had gone to Mars in early 2008 and returned in early 2011, he shall be excused for not believing that the world had been through the worst ever credit crisis in the interim period. It is one big on-going party.

The fundraising frenzy in Asian fixed income has being primarily driven by three instruments – U.S.denominated high-yield bonds, dimsum bonds, perpetual bonds.

High-Yield bonds: There spurt in new issuances over the last few months has been due to the large interest rate differential between U.S. and Asian economies. Moreover many Asian countries have been stepping up their policy rates in order to combat inflation. These moves are having an adverse effect on their domestic bond markets. As a result local companies are finding it cheaper to raise debt in U.S. dollar as compared to their local currency.

Dimsum bonds: The ‘Chinese Internationalization story’ is being touted by fund managers on their fundraising trips. The dim sum bonds have suddenly given them a new product to market to their clients. The ‘Exposure to the appreciating RMB and high growth Chinese companies at the same time’ rhetoric is music to ears of investors in the West who are aggressively increasing their allocation to Asia. It is no wonder then that this market is growing exponentially.

Perpetual bonds: There have been a quite a number of new perpetual bonds (commonly known as perps)issuances over the last few months with a flood of them expected to follow soon. From an issuer’s perspective, the ability to to raise long-term funding in a low interest environment, support for credit ratings (owing to equity credit) and absence of equity dilution are key attractions. As for the investors, they are enticed by the relatively high yields on offer, especially the private banking clients.

Pick up a macro report on Asia from any investment bank or research house. Each of them projects robustgrowth in the next decade ‘subject to inflation’. If the reports are not convincing enough, the statisticson young demographics in India & China, number of millionaire households, labour productivity, etc. canbe obtained. All of them point toward one conclusion – while U.S. continues to recover from coma, Asianeconomies would be running on steroids if they can keep their respective inflations in check. So what does that imply for fixed income investment instruments in Asia? It means that Asian companies, especially the ones that cater to domestic consumption shall have no problems whatsoever in servicing their debt obligation as they would be able to generate sufficient cash flow. That’s all the investors from the West, especially the ones from U.S. care about.

So companies are willing to raise funds and investors are happy to subscribe to those securities. Marriagemade in heaven, right? Not quite I would say.

Up until a few years ago, a default in Asia reflected the inability of the borrowers to repay their debt. However these days a default more often than not indicates their unwillingness to repay. The reason is the weak bankruptcy and creditor protection laws in Asia. It can be a long drawn and expensive battle for creditors (especially overseas ones) to get their money back. Borrowers have smarted to this fact and using it to their advantage. This phenomenon is not limited to any one country and there have been cases of intentional debt defaults in each of China, Indonesia, Philippines & India.

Armed with the above knowledge, many weak & dishonest companies are opportunistically tapping the Asian debt markets moment and managing to raise fund thanks to yield hungry investors from U.S. and Europe who are investing in almost anything in the name of ‘emerging market exposure’. Pitch books are put together hurriedly (and carelessly), road shows are organized around the globe in a jiffy and the next thing you know – the issue has been oversubscribed six times!! There are instances when the participants don’t even get a day to do their due diligence on the Company and yet compete with each other to get some allocation because of the fear of ‘missing out’.

According to some estimates, over US$ 200 billion of debt would be underwritten between now and mid-2012. I won’t be surprised if a quarter of them have problems like missed coupon payments, bad corporategovernance or accounting scandals in 12-18 months after the issuance of the bonds. This is especially true for high-yield and dimsum bonds. This phenomenon can potentially paralyze the world economy and throw us back into a mini-recession.

In conclusion, Warren Buffet once said ‘be greedy when everybody is fearful and be fearful when everybodyis greedy’. The yield hungry investors and shady companies are being greedy and that makes me very veryfearful.

(Tanuj Khosla is currently working as a Research Analyst at 3 Degrees Asset Management, a fund management firm in Singapore. He can be followed on Twitter @Tanuj_Khosla. Alternatively he can be reached at khosla.tanuj@gmail.com. Views expressed are personal.)